CBA: The TV Issue

Sunday, August 10, 2003

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The year 2004 will not only mean the expiration of the current Collective Bargaining Agreement for the NHL, it will also bring the expiration of the league's national television contract with ABC and ESPN. And while it seems the CBA and TV are two different issues, both will play a role in the economic future of the National Hockey League.

Next season will mark the final season of the League's five-year, $600 million deal with ABC and ESPN. Experts believe the league could have a hard time coming close to a deal like that again. That could put a dent in revenues that are shared by all 30 teams.

The NHL has a lot working against it as it tries to pursue a new deal with U.S. networks. First, there is the combination of the looming labor fight over the CBA and the league's financial woes.

"I've got to believe that on a going-forward basis the sponsors and networks are going to be saying: 'What's on the horizon? It looks like teams are in trouble. It looks like there may be a labor impasse. And if I'm putting money together for a marketing strategy, I might just as well find a better place for it than the NHL, because it's too risky.,'" analyst David Carter, who is with the Sports Business Group, told the Toronto Globe and Mail.

Second, the U.S. networks are getting hammered financially due to paying big rights fees to broadcast major sports. An estimate by Morgan Stanley projects the U.S networks will lose a combined $6 billion broadcasting sports between 2001 and 2006. $400 million or so of those losses will be due to the NHL. Those gloomy projections have the networks vowing to stop shelling out big bucks for broadcast rights.

"The days of networks paying ever-escalating rights fees are over,'' CBS President Les Moonves said during a recent panel discussion about sports programming on the networks.

Third, the NHL has never been a big player when it comes to getting its product broadcast on the U.S. networks because the numbers just don't add up for television executives.

"Hockey draws a small audience and it’s too hard to justify paying those kind of dollars," former ABC Sports vice-president Jim Spence told the Toronto Star. "It doesn’t televise that well and it just isn’t ingrained in the U.S. It’s been the same problem for years."

Or as a an advertiser once told Broadcasting & Cable Magazine: "Greatest sport live, but the league has never learned a way to market itself to the U.S. audience. They have great stars and good marketing potential, but the problem is, it hasn't caught on with American viewers. [The NHL has] a huge problem."

That's why many people were surprised that NHL Commissioner Gary Bettman got the current $120 million per year from ABC and ESPN. Some believe he may not be so lucky this time around.

Even though Game 7 of the Stanley Cup Finals between New Jersey and Anaheim was the highest rated NHL game in the U.S. since 1974, the overall ratings on ABC and ESPN have remained stagnant and have dropped in some cases.

"He got such an extraordinary deal the last time that even if ratings had stayed the same it would have been hard to replicate," Tracy Dolgin, the former president of Fox Sports Net told the Sports Business Journal.

Despite all the negatives, Bettman remains optimistic he can get a new, comparable deal.

"My expectation is that we'll continue to maximize the exposure that we're getting nationally, and that we'll be paid fairly for it," Bettman told the Sports Business Journal. "I am quite confident that we will have a continued presence on national television, not dissimilar to the way we have it now."

But industry analysts think the NHL could see revenue from its next U.S. TV deal drop 50 percent. That could be a big blow to a league that says it can't generate enough revenue to keep pace with rising player salaries.

It would be a financial set back for the NHL which, unlike the other major team sports, doesn't have the luxury of being able to offset rising salaries with lucrative national TV deals.

If you take the money paid by ABC/ESPN to broadcast NHL games each teams gets $4 million per year. Throw in deals with the Canadian networks and you can add another $2 million. Annual total revenue per team from national TV rights: about $6 million, not including local TV money.

The NBA rakes in $766 million per year from ESPN/ABC and Turner Sports, or $26 million per team.

Major League Baseball takes in $560 million a year from Fox and ESPN. That's almost $19 million per team.

The NFL brings in $2.2 billion a year from its deals with Fox, CBS, ABC and ESPN. Each NFL team gets about $77 million per year from those deals and that money basically covers what the teams pay in player salaries, which is capped at around $75 million.

In other words, the NFL's national TV deals help each team cover the salary costs for all players. For some teams in the NHL, the national TV revenue might cover the cost of one player. The $6 million the St. Louis Blues get next season from national TV will not cover the cost of the $6.5 million arbitration award given to Pavol Demitra last week.

"You look at hockey and you have three-quarters of [all] its revenue going to the players," Carter, the analyst, said. "And, clearly, the league does not have nearly as strong a TV landscape. So hockey's revenue is markedly lower, but the percentage they have to pay to their athletes is much higher. I think that's a pretty stark difference."

And even though the NHL's national TV revenue pales in comparison to the other sports, it still plays a crucial role to several teams, especially ones is smaller markets.

"That U.S. TV revenue can be the difference between a profit and a loss,” Calgary Flames president Ken King told the Toronto Star, “and it covers the cost of a high-paid player."

But TV revenue is not limited to the national contracts. Teams also work out deals with local broadcasters and many teams get far more money from local TV than they do from the national contracts. That is money the teams get to keep to themselves.

The New York Rangers are estimated to pull in $25 million per year from local rights. So do the Boston Bruins. Toronto gets $23 million. Montreal gets $16 million.

The Dallas Stars get big bucks in local TV revenue thanks to owner Tom Hicks' 15-year, $550 million deal with Fox Sports to broadcast both the Stars and Texas Rangers baseball games on a local and regional level.

But not every NHL team pulls in big dollars from local TV. Some of the smaller market teams in the U.S. pull in less a $1 million per year from local broadcast rights.

To some that's another sign of the disparity between the haves and the have nots in the NHL. To others it's a sign that the league's pursuit of National TV exposure in the United States may be partly to blame for the league's financial woes. More on that in our next report.

MLB, NBA, NFL and NBA national broadcast deals in the U.S.

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